Good debt vs Bad debt

Updated: Feb. 7, 2022 at 7:01 AM EST
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RICHMOND, Va. (WWBT) - We always talk about eliminating debt, but did you know there is such a thing as good debt?

Experts tell us good debt is debt with the potential to increase your net worth. It’s having assets that don’t lose value. For example, take your mortgage on a home. Over time, that house will likely increase in value - that’s considered good debt.

Michael Joyce with the financial firm Agili says bad debt is when something loses value quickly. “Bad debt would be taking out credit card debt to subsidize your ongoing monthly expenses. Or even buying any kind of depreciating asset like a car or a boat,” Joyce said.

If you do need to buy a big-ticket item like a car, Joyce says it’s best to have as much money as possible to put down. That way you make your loan payment manageable and you don’t have to take out the loan for a long time.

Basically you don’t want to be a in a situation where your car depreciates faster than the term of your loan.

Bad debt is still important to have. We now live in a credit over cash society, but if you do have credit cards it’s important to pay them off in full each month or have a plan to pay that debt off as quickly as possible.

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